USD/BRL: Real steady as Fed and Brazil central bank diverge

    The USD/BRL moved sideways this week even after the Federal Reserve and the Brazilian central bank diverged on monetary policy. The Brazilian real was trading at 4.9 against the US dollar, meaning it has jumped by 8.9% from the lowest level this year.

    Fed and Brazil central bank diverge

    The Federal Reserve and the Brazilian central banks were some of the major banks that met this week. On Wednesday, the Federal Reserve decided to hike interest rates by 0.25% and continue with its quantitative tightening (QT) policy. Through QT, the bank is reducing its balance sheet by over $90 billion per month.

    In a statement, Jerome Powell, the Fed Chair said that the decision was unanimous and that it showed the bank’s determination to fight inflation. He also said that the bank will likely not consider slashing interest rates later this year. Analysts expect that the bank will leave interest rates in this level for the rest of the year.

    Still, there are signs that the Fed will cut rates either in Q4 or in 2024. For one, crude oil prices have plunged this week, meaning that inflation could drop at a faster pace than expected. Also, the collapse of regional banks will likely lead to a faster deterioration of the American economy.

    The next key USD news to watch will be the upcoming American jobs data scheduled for Friday. These numbers are expected to show that the American economy added about 180k jobs in April after adding 236k jobs in the previous month.

    The USD/BRL pair also reacted to the latest interest rate decision by the Brazilian central bank. The central bank decided to leave interest rates at 13.75% for the sixth straight meeting. Unlike the Fed, inflation in Brazil has moved to 4.65%, inside the bank’s target of 1.75% and 4.75%.

    USD/BRL technical analysis

    USD/BRL chart by TradingView

    The daily chart shows that the USD/BRL pair has been in a bearish trend in the past few months. It has dropped from the year-to-date high of 5.48 to below 5. The pair has moved below the key support at 5, the lowest level on November 4. It has also dropped below the 50-day moving average.

    Therefore, the USD to BRL pair will likely continue falling as sellers target the key support at 4.6950, the lowest level on May 26 last year.

    The post USD/BRL: Real steady as Fed and Brazil central bank diverge appeared first on Invezz.

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